Zune revenue drops 54% during second quarter

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The Zune, Microsoft’s personal media player, didn’t help the company with its second quarter financial results. The company’s Entertainment and Devices Division, which includes the Zune as well as the Xbox 360 platform, and PC games, was up just 3% compared to the same quarter last year. Looking at the Zune platform specifically its revenue decreased US$100 million year over year. That a 54% decrease, due in part to a decrease in device sales.

{ad}If the Zune continues to be a weight which brings Microsoft’s Entertainment and Devices Division down you can bet that Microsoft will bail on the Zune all together. Right now the company is hoping the downturn in Zune sales is due to the economy. Due to the investment Microsoft made in putting out the Zune it would be a little embarrassing for Microsoft to pull out right now, especially since the Zune was a response to Apple’s iPod.

Speak Your Mind

SkateNY

It’s truly fascinating when a company as large and as influential as Microsoft can tell their church-goers that everything is “fine” with a product that loses 54% of revenues over the course of a year. That tells us something about Microsoft, but it also tells us something about Microsoft customers and investors, so eager to believe that what is false is actually true. Many of us read their delusional beliefs on the Web on a near-daily basis.
I don’t doubt that many or even most Zune owners are satisfied with what they have. Here’s my thing: Apple dove into the MP3 market when that market was already well on its way to maturity. The iPod quickly made a big splash, and iTunes has played no small part in helping the iPod acquire a 70% market share. Apple did not engage in illegal, monopolistic business practices in order to achieve that level of prominence; nor did Steve Jobs hypnotize buyers, steering them towards the iPod.
When the iPod was released in October of 2001, it succeeded during a recession caused by the terrorist attacks of 9/11. If the current economic climate adversely affected the Zune and other consumer products, then it stands to reason that it also adversely affected iPod sales. Yet, Apple reported a growth in iPod sales for the most recent quarter, versus a 54% drop in Zune revenues. How much better would the iPod have faired this quarter without the deepening recession?
I believe that Microsoft and its investors need to re-evaluate the Zune with regard to how it affects other products, and how it affects shareholder interests. If I’m a Microsoft competitor — and I don’t believe that Apple and Microsoft compete in the sense that they appeal to very different groups of customers — then I truly hope that Microsoft continues to throw money and other resources at the Zune. Let them and their investors learn the hard way. Again.